AECT Electricity 101 - Fall 2011 Update

Electricity 101:

Operations and Recent Statistics

Fall 2011!

Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 • phone 512-474-6725 • fax 512-474-9670 • www.aect.net

2

AECT Principles!

• AECT is an advocacy group composed of member companies committed to:

- Ensuring a modern, reliable infrastructure for the supply & delivery of electricity.

- Supporting efficient competitive markets that are fair to customers and market participants.

- Supporting consistent and predictable oversight and regulation that will promote investment and ensure the stability of Texas’ electric industry.

- Promoting an economically strong and environmentally healthy future for Texas, including conservation and efficient use of available resources.

• AECT member companies remain dedicated to providing Texas customers with reliable service and are committed to the highest standards of integrity.

The Association of Electric Companies of Texas, Inc. (AECT) is a trade organization of investor-owned electric companies in Texas. Organized in 1978, AECT provides a forum for member company representatives to exchange information about public policy, and to communicate with government officials and the public. For more information, visit www.aect.net.

3

U.S. Divided into Eight!Reliability Regions!

•  Electric systems in Texas are located within four separate reliability regions: - Texas Regional Entity (TRE), which oversees participants in the Electric Reliability Council of Texas (ERCOT) (green shading); - SERC Reliability Corporation; - Southwest Power Pool (SPP); and - Western Electricity Coordinating Council (WECC).

•  The eight reliability regions in the continental U.S. are subject to the oversight and enforcement authority of the North American Electric Reliability Corporation (NERC), which is subject to the Federal Energy Regulatory Commission’s (FERC) oversight. NERC is responsible for developing standards to ensure and improve reliability for delivery of electricity on the bulk power system.

FERC

NERC

(ERCOT)

4

AECT Member Companies!Within ERCOT!

Generation Companies

Transmission and Distribution Utilities

Retail Electric Providers

5

AECT Companies!Outside of ERCOT!

Western Electricity Coordinating Council (WECC)

Southwest Power Pool (SPP)

SERC Reliability Corporation

6!

Slide 7: AECT Member Companies

Slide 23: Electric Market Structures in Texas

Slide 36: Texas’ Wholesale Electric Market

Slide 46: ERCOT Generation Mix

Slide 51: Types of Generation: Benefits and Challenges

Slide 61: Emissions and the Environment

Slide 74: Transmission and Distribution Utilities

Slide 84: Energy Efficiency

Slide 92: Competitive Retail Electric Market in ERCOT

Contents!

7!

AECT Member Companies!

8!

AEP SWEPCO!Vertically Integrated Utility!

Southwestern Electric Power Company, headquartered in Shreveport, LA, serves 460,000 customers in East Texas and the Texas Panhandle, Northwest Louisiana, and the western edge of Arkansas. SWEPCO has been providing low-cost, reliable electricity to customers since 1912. SWEPCO is a vertically integrated company operating as a member of the Southwest Power Pool.

9!

AEP Texas!Transmission & Distribution Utility!

AEP Texas is connected to and serves more than 900,000 electric consumers in the deregulated Texas marketplace. As an energy delivery company, AEP Texas delivers electricity safely and reliably to homes, businesses and industry across its nearly 100,000 square mile service territory in south and west Texas.

10!

CenterPoint Energy!Transmission & Distribution Utility!

CenterPoint Energy maintains the wires, poles and electric infrastructure delivering service to more than 2 million consumers in its 5,000-square-mile electric service territory in the Houston metropolitan area. While CenterPoint Energy employees ensure the reliable delivery of electricity from power plants to homes and businesses, the company neither generates power nor sells it to retail customers.

11!

El Paso Electric Company!Vertically Integrated Utility!

El Paso Electric is a vertically integrated utility serving approximately 357,000 customers in the Rio Grande Valley in west Texas and southern New Mexico. El Paso Electric is an operating member of the Western Electricity Coordinating Council.

12!

Entergy Texas!Vertically Integrated Utility!

The Entergy Texas service area starts at the southeast Texas/Louisiana border and stretches up into the piney woods of east Texas, down to the Gulf of Mexico and across to the lake country north of Houston. Entergy Texas serves approximately 385,000 customers in 26 counties.

13!

Exelon Generation!Electric Generation Company!

Exelon Generation owns and controls about 31,000 megawatts of electricity generation capacity from a diverse portfolio that includes the nation’s largest fleet of nuclear power plants. The company maintains strong positions in the Midwest and Mid-Atlantic regions. In Texas, it owns and controls about 3,132 MW of natural gas-fired and wind generation, with plants in the DFW region, LaPorte and the Texas Panhandle.

14!

First Choice Power!Retail Electric Provider!

First Choice Power began serving customers as a retail electric provider across Texas on Jan. 1, 2002, when deregulation of the electric industry was introduced in Texas. First Choice Power is one of the largest retail electric providers in the state. It is led by a management team with experience in the deregulated markets in Texas and throughout the nation.

Competitive Areas of Texas

15!

Luminant!Electric Generation Company!

Luminant is a competitive power generation business, including mining, wholesale marketing and trading, construction and development. It has over 18,300 MW of generation in Texas, including 2,300 MW of nuclear and 5,800 MW of coal-fueled generation capacity, and is the largest purchaser of wind-generated electricity in Texas and fifth largest in the U.S.

16!

NRG Energy!Electric Generation Company!

NRG Texas is the second largest electrical generator in Texas with more than 1,100 professional employees operating a diverse generation portfolio of almost 11,000 megawatts of power. NRG Texas also has an extensive repowering program including a new combined cycle gas plant at the Cedar Bayou plant east of Houston, a coal unit at Limestone; two wind projects in West Texas and the first new nuclear units proposed for the United States in more than 29 years.

17!

Oncor!Transmission & Distribution Utility!

Oncor is a regulated electric distribution and transmission business that delivers reliable electricity to consumers. Oncor operates the largest distribution and transmission system in Texas, providing power to more than 3 million electric delivery points over more than 115,000 miles of transmission and distribution lines.

18!

Optim Energy!Electric Generation Company!

Optim Energy is a joint venture of PNM Resources and Cascade Investment, L.L.C. It provides wholesale generation and marketing and trading services in the ERCOT region. The company owns two generation assets, both in Texas, representing 920 megawatts. In addition, the company and NRG are jointly developing a 550-megwatt combined cycle natural gas unit near Houston.

19!

Reliant Energy!Retail Electric Provider!

Reliant Energy, Inc., based in Houston, Texas, provides electricity and energy-related products to more than 1.8 million retail and wholesale customers in Texas and in the Mid-Atlantic Region. As one of the largest electricity providers in Texas, Reliant works hard to provide its customers with competitive electric prices, innovative products and unmatched customer service for their homes and businesses.

Competitive Areas of Texas

20!

Texas-New Mexico Power Co.!Transmission & Distribution Utility!

Currently, TNMP provides electric service to 76 cities and more than 226,000 customers throughout Texas. TNMP is owned by PNM Resources, an energy holding company based in Albuquerque, New Mexico.

21!

TXU Energy!Retail Electric Provider!

TXU Energy is a market-leading competitive retailer that provides electricity and related services to more than 2 million electricity customers in Texas. TXU Energy offers a variety of innovative products and solutions, including 24/7 customer service, competitively priced service plans, energy efficiency options and renewable energy programs.

Competitive Areas of Texas

22!

Xcel Energy!Vertically Integrated Utility!

Xcel Energy owns Southwestern Public Service Company, a regional electric utility that provides service to about 400,000 persons in a 45,000 square-mile area comprised of the South Plains and Panhandle of Texas, and eastern New Mexico.

23!

Electric Market Structures in Texas!

24!

Pre-1975 •  Cities regulated electric utility service and rates. •  Generally, a declining cost industry – rate applications most often filed to decrease rates.

1975 •  Inflation, construction costs and fuel costs drive electricity rates up. •  64th Texas Legislature enacts Public Utility Regulatory Act (PURA) to implement state regulation of

electric utility service and rates (Cities permitted to retain original jurisdiction). –  Service area, transmission line and generating plant certification. –  Rate regulation (based on cost of service plus reasonable return on investment). –  Rates based on historical test year costs and original costs of infrastructure, less depreciation. –  Service quality regulation. –  Customer protection.

History of Electric Utility Regulation in Texas!

25!

1976-1995

•  1978 U.S. Fuel Use Act required utilities to discontinue use of natural gas and encouraged the use of coal and nuclear for fuel.

•  Inflation, volatile fuel costs and the need to add new generating capacity continue to increase electricity rates.

•  Rate proceedings at PUC become increasingly adversarial. –  Consumer groups concerned about frequency and amount of rate increases.

–  Utilities concerned about increasingly large PUC cost disallowances that are at odds with the regulatory compact and erode rates of return.

•  Large customers tire of subsidizing other ratepayers seek opportunities to by-pass regulated rates and obtain choice of suppliers.

–  Cogeneration/self-generation.

–  Advocate wholesale competition and transmission open access.

–  Advocate “retail wheeling”. •  Natural gas was favored again when the 1978 U.S. Fuel Use Act was repealed in the 1990s.

History of Electric Utility Regulation in Texas!

26!

Wholesale competition legislation passed (SB 373)

May1995

Jan. 2002

Retail competition legislation Passed (SB 7)

June 1999

Sept. 1999

ERCOT Electric rates frozen

Jan. 2005

July 2001

Texas Choice pilot program begins

Affiliate REPs allowed to offer non-price-to-beat prices

Steps to Electric Competition!In Texas!

Retail choice begins in ERCOT

Jan. 2007

End of price-to-beat

27

Wholesale and Retail Electric Competition Were Passed !With Broad, Bipartisan Support!

•  Senate Bill 373, which opened the wholesale electricity market in Texas, passed in 1995 when the Democrats were the majority party in the House and Senate.

–  The Speaker of the House and the Lieutenant Governor were both Democrats, and the bill sponsors and authors were both Democrats.

•  Senate Bill 7, which opened the competitive market, passed in 1999. –  The Senate and the Lieutenant Governor were Republican, but the House

was still majority Democrat. The House sponsor and author of the bill and the House Speaker in 1999 were both Democrats.

–  Senate Bill 7 passed the House with a vote of 144 Ayes and 4 Nays.

•  It was a bipartisan measure: 74 of the Aye votes were from Democrats, while 68 were from Republicans.

–  The bill passed the Senate with a vote of 28 Ayes and 3 nays.

28!

•  Senate Bill No. 373 enacted in May 1995

–  Required utilities to provide non-discriminatory open access transmission to support wholesale competition in ERCOT.

–  Recognized new, unregulated participants in ERCOT wholesale market.

  Exempt wholesale generators

  Power marketers

–  Allowed non-utility wholesale market participants to offer market-based prices in ERCOT.

–  Deregulated electric cooperative distribution rates.

Note: Non-ERCOT areas are subject to FERC jurisdiction for wholesale services, including transmission services.

Steps to Competition:!Wholesale Competition!

29!

•  ERCOT market restructuring legislation, Senate Bill 7, passed in 1999

–  Initiated competition in ERCOT retail markets beginning January 2002. –  Municipally-owned utilities and electric cooperatives allowed to “opt-in”. –  Included environmental and energy efficiency provisions.

•  Required reduction of nitrogen oxide (NOx) emissions from older power plants by 50%, and sulfur dioxide emission from coal-fired facilities by 25%.

•  Utilities required to fund energy efficiency programs equal to at least 10% of each year’s annual growth in demand.

–  1999 - 2001 – Preparation for retail competition. •  Electricity rates frozen. •  ERCOT develops systems required to support competition. •  PUC promulgates competition rules. •  PUC determines rate unbundling cases.

–  July 2001 – Retail competition pilot project begins.

Steps to Competition:!Retail Competition!

30!

Steps to Competition:!Transition Period!

•  January 2002-2006 Transition Period –  “Affiliated” generators

•  Required to make 15% of their power available to non-affiliated retail providers •  During first two years, limited to guaranteed market price for power as projected by

PUC •  Given incentives to install environmental clean-up equipment

–  Transmission and Distribution Utilities •  Initial rates set using estimated/generic costs •  Recovery of stranded and other transition costs authorized but delayed until 2004

True-up proceeding –  Securitization bonds lower cost to customers

–  “Affiliated” retail electric providers •  Required to lower base rates by six percent (Price to Beat)

–  Adjustable only for increases in natural gas prices –  Price to Beat remains in place until 12-31-06

•  No price competition allowed in former service area until 2005

31!

•  Incumbents required to separate business activities into the following units.

–  Power generation company. –  Retail electric provider. –  Transmission and distribution utility.

•  Generation and retail businesses are not regulated utilities. –  Power Generation Companies must be registered with PUC. –  Retail Electric Providers must be certified by PUC.

•  Transmission and distribution businesses remain regulated utilities.

•  Methods for separation of business activities. –  Creation of separate non-affiliated companies. –  Creation of separate affiliated companies owned by a common holding

company. –  Sale of assets to a third party.

•  Each ERCOT utility chose different models.

•  Code of conduct rules enforce separation requirements.

Structural Unbundling!

32

ERCOT: Separate companies provide retail, transmission & distribution and generation services!

•  In competitive markets, consumers have multiple retail electric providers (REPs) and service plans to choose from.

•  Wholesale and retail prices are set by competitive market forces, while the PUC sets transmission and distribution rates.

Power Flow Financial Flow

Regulated

33

ERCOT: Separate companies provide retail, transmission & distribution and generation services!

•  Because wholesale electric prices are set by the competitive market, the risks associated with the cost of construction, operations and maintenance of a generation plant are borne entirely by the generator and its investors, not by end-use customers.

Power Flow Financial Flow

Regulated

34

Outside ERCOT: A single company provides retail, transmission & distribution and generation services in each area!

•  In fully regulated markets, the PUC sets retail rates charged to end-use customers.

•  Each of these service areas is part of multi-state electric grids, with differing regulations. In many cases, vertically integrated utilities purchase wholesale power from certain unregulated entities.

Power Flow Financial Flow

Regulated

35

•  New power plants in these regions can be built by both regulated entities and certain unregulated entities or qualifying facilities.

•  Regulated utility power plants, however, must be approved by the PUC after a rigorous review of need and siting.

Outside ERCOT: A single company provides retail, transmission & distribution and generation services in each area!

Power Flow Financial Flow

Regulated

36

Texasʼ Wholesale Electric Market!

37!

The Competitive Wholesale Market: A Success Story !

Competition has brought greater efficiency to the wholesale market

–  Generators shoulder the risk of building new power plants, bringing efficient, cost-effective generation to consumers.

–  New power plants produce more electricity per unit of fuel. –  New power plants include modern environmental emissions controls.

The competitive market is in the public interest –  Operational efficiency of a competitive market helps push wholesale prices

downward. –  No market structure is more effective at ensuring efficient operations than a

competitive one.

Policy decisions should be focused on maintaining vibrant competition

–  Texas leaders should support policies that maintain the competitive market. –  The competitive market will bring forward the right mix of technology and fuel

type based on environmental choices by policymakers.

38!

Permitted and Operating Electric Generating Units in Texas

39!

ERCOT Wholesale Market Management!

•  System Reliability –  ERCOT oversees system reliability. –  ERCOT is part of national reliability council. –  ERCOT protocols, approved by PUC, mandate system reliability standards that all

market participants must follow.

•  Statute and Rules Address “Market Power” and Generation Merger Issues –  Independent Market Monitor oversees wholesale market operations. –  Generating capacity owned and controlled by a Power Generation Company limited to

20% of installed generating capacity capable of delivering power to a power region. –  Administrative penalties for market power abuse were reviewed and updated during the

79th Regular Session. –  Mergers of Power Generation Companies subject to PUC review.

•  Market Design –  ERCOT will transition to a Nodal Market in 2009 as a result of PUC rulemaking. –  The change is expected to bring cost-savings and additional efficiency to the market by

enhancing market transparency and allocating costs more accurately to market participants.

40!

Wholesale Market !Management Outside ERCOT!

•  System Reliability –  Larger, multi-state Councils (SERC, SPP, WECC) oversee system reliability. –  Each is part of national reliability council. –  Protocols, approved by the Federal Energy Regulatory Commission (FERC), mandate

system reliability standards that all market participants must follow.

•  Wholesale market operations overseen by FERC

41!

Increased Population DrivesFuture Electric Consumption!

Source: Texas State Data Center

0

5

10

15

20

25

30

35

40

45

50

Texas’ Projected Population Growth Assuming Net Migration Equal to 2000-2004

(median scenario)

30.3 million

25.1 million

43.6 million

2010 2020 2030 2040

• To meet increases in electric load created by Texas’ rapid population and economic growth, Texas will require additional power, transmission and distribution, customer demand response and energy efficiency.

36.3 million

42!

Electric Consumption Continues to Grow in ERCOT!

Source: ERCOT, “Report on Existing and Potential Electric System Constraints and Needs,” December 2010

Note: The peak in electric consumption in 2000 was due to an exceptionally hot summer.

43!

Peak Demand Also Growing, Requiring Additional Investment Long-Term!

Source: ERCOT, “Report on Existing and Potential Electric System Constraints and Needs,” December 2010

44!

ERCOT Restructuring Spurred !Massive Generation Investment!

•  The competitive market has steadily added new generation and greater efficiency to the wholesale market.

•  Generators in the competitive market shoulder the risk of building new power plants, bringing efficient, cost-effective generation to consumers.

Sources: Energy Velocity, NERC, PUC

45!

Update on ERCOT Reserve Margins

•  ERCOT recently raised its target reserve margin to 13.75% of generation available above peak summer demand. To meet this goal, ERCOT will need additional generation in upcoming years

Source: ERCOT, “Report on Existing and Potential Electric System Constraints and Needs,” December 2010

46

ERCOT Generation Mix!

47!

ERCOT Generation Mix!

•  The generation technology mix is an outcome of a robust competitive wholesale market and environmental policy decisions.

•  In addition to the price of fuels and the cost of technology, environmental and siting issues impact choices made by generation developers.

•  Coal, including lignite, is an important fuel in the ERCOT electric generation mix.

–  Coal is the most abundant fossil fuel in the United States, with an estimated 200 year supply remaining (per the Energy Information Administration (EIA)).

–  Electricity produced from Texas lignite exceeds the entire generation of 28 states individually.

•  Texas lignite accounts for about 45% of the coal used in the state for electricity. •  Texas’ lignite mining industry is a key part of the state economy, providing over

33,000 permanent jobs and contributing about $10.5 billion in annual Total Expenditures.

•  The existing framework of Texas’ competitive wholesale electric market has helped lead generators to invest in and announce plans for over 23,000 MW of new generation, including natural gas, coal, nuclear and renewable power.

Sources: EIA, National Mining Association, The Perryman Group, PUC

48!

Gas on the Margin in ERCOT Year-Round

Demand Curve - Summer Scenario

0

10000

20000

30000

40000

50000

60000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Hour

MW

Lo

ad

Nuclear Coal Wind Natural Gas

Examples are purely illustrative

Demand Curve - Winter Scenario

0

10000

20000

30000

40000

50000

60000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Hour

MW

Lo

ad

Nuclear Coal Wind Natural Gas

•  There are multiple types of power plants with different operations in ERCOT that are operated on different schedules.

–  Because of their lower marginal costs, nuclear and coal-fired power plants in ERCOT operate approximately 90 percent of the time.

–  In contrast, natural gas-fired power plants are ramped on and off, depending upon demand. –  Wind-generated electricity is only intermittently available, depending on wind conditions.

•  Some natural gas-fired generation is required to operate at all times in the ERCOT region to meet demand.

–  Natural gas-fired generation sets the market price of wholesale electricity in ERCOT. –  Natural gas-fired units that are used to meet peak demand tend to be older units that cost more to

operate.

49!

Business Climate for Generators in ERCOT

•  In ERCOT, generation companies assume all of the financial risk included in a new generation projects.

•  The decision to build new generation thus depends upon whether the generator believes the electricity can be sold at a price to recoup construction costs, cover operations and maintenance costs and achieve a profit.

•  Market forces have been effective in bringing new generation to the state, with 50,689 MW of generation constructed since the advent of wholesale competition in 1995.

•  While not all is expected to the built, the PUC reports substantial new generation has been announced, including:

–  7,841 MW of new coal-fired generation –  5,900 MW of new nuclear generation –  9,830 MW of new wind-powered generation –  9,318 MW of new natural gas-fired generation

•  Though such news is positive, market forces and legislative and regulatory certainty will ultimately dictate how much of the announced new generation is actually built.

Data source: PUC, “New Electric Generating Plants in Texas,” updated December 31, 2010

50!

Texas Has the Most Installed !Wind Energy Capacity

Source: American Wind Energy Association, Through Q1 2011

24% of the nation’s installed wind generation capacity is located in Texas.

51

Types of Generation:Benefits and Challenges!

52!

Three Key Factors Affecting Choices for New Generation

Wholesale Market

Cost of Construction and Fuels

53!

Coal-Fired Generation

Type of Generation + Coal-fired plants provide baseload generation, by running

approximately 90 percent of the time.

Environmental Issues - Greater air emissions than natural gas-fired plants, including

rate of about twice the CO2 per kWh generated. - Risk of higher costs due to future carbon-capture

requirements.

Cost of Construction and Fuels + Currently, pulverized coal generation is economical to build based on current

natural gas prices. + Long-term domestic supply of coal, including lignite. + Fuel cost is relatively low - High initial capital costs relative to natural gas-fired plants.

54!

Natural Gas-Fired Generation

Type of Generation - Natural gas plants, such as combined-cycle plants, can

provide baseload generation, but demand conditions in ERCOT result in a lower capacity factor than for coal-fired or nuclear-powered generation.

+ Other simple-cycle natural gas plants have quick start-up and shut-down times to allow them to meet peak demand.

Environmental Issues + Lowest air emissions among fossil fuels. + Newest power plants operate more efficiently, burning less

fuel per MWh of generation.

Cost of Construction and Fuels + Low initial capital costs. - When natural gas prices are high, gas-fired power plants are expensive to operate.

55!

Nuclear-Powered Generation

Type of Generation + Nuclear-powered plants provide baseload generation by

running approximately 90 percent of the time.

Environmental Issues + No air emissions. - Long-term storage of waste needs to be implemented. -  Historic concerns regarding public perception of safety of

nuclear power.

Cost of Construction and Fuels + Lowest fuel cost of all large-scale generation. - High capital costs. - Longest permitting and construction times among generation types.

56!

Wind-Powered Generation

Cost of Construction and Fuels + No fuel cost. -  Limited ability to replace other generation to satisfy reserve margins. -  Imposes other costs on the system, such as increased ancillary service

requirements, backup capacity and the need for transmission lines to reach rural wind farms.

Type of Generation + Wind is plentiful in certain parts of Texas. -  Wind blows intermittently, making it a less reliable power

source.

Environmental Issues + No air emissions. -  Can affect migratory birds. - Concerns about aesthetic impact.

57!

Solar Generation

Type of Generation + Solar power is generally reliable, but intermittent, as it

depends on certain levels of sunlight. - Plants are generally small in scale.

Environmental Issues + No air emissions. - Large areas of land needed for effective solar arrays.

Cost of Construction and Fuels - Can have 15 to 20 times the capacity cost of natural gas-fired generation + No fuel cost. -  Cannot be used to replace other generation to satisfy reserve margins. -  Imposes other costs on the system, such as the need for transmission lines, since

large-scale solar power plants would be located in areas far from population centers.

58!

Biomass and Landfill Gas Generation

Type of Generation + Biomass and landfill gas generation generally operates

reliably. - Plants are generally small in scale.

Environmental Issues - Plants burning biomass can have high CO2 emissions. + Landfill gas facilities reduce methane greenhouse gas

emissions. - Generation is difficult to permit and site.

Cost of Construction and Fuels -  Requires high capital and operating costs when compared with fossil fuel-fired

generation -  Often located far from population centers, requiring high transmission costs

59!

Hydroelectric Generation

Type of Generation + Hydroelectric power is reliable to operate, except during

drought. - Texas has very little potential for new hydroelectric power

generation.

Environmental Issues + No air emissions. - Can kill fish.

Cost of Construction and Fuels + Once built, hydroelectric power is among the least expensive forms of power, as it

has no fuel costs. - High capital costs

60!

Energy Efficiency and Demand-Side Management

Type of Technology + Several cost effective solutions available. - Success requires broad implementation.

Environmental Issues + Reduces emissions that would otherwise accompany fossil

fuel usage.

Cost of Construction and Fuels + Can improve cost levels for residents and customers. + Reduces need for building new power supply.

61!

Emissions and the Environment!

62!EPA Clean Air Markets Division – 2010 Acid Rain Program Data

Area

2010 NOx Emission Rate Averages (lbs/

mmBtu) National 0.156 Texas 0.095

0.347 NM

0.095 TX

0.237 OK 0.194

AR

0.137 LA

Texas has the largest emissions of any state since it produces 80% more power than the next ranked state.

Texas is Already Leading the Way in Clean Power Plants

63!

–  HGA SIP- 86% overall reduction from 1997

–  DFW SIP- 88% overall reduction from 1997

–  Beaumont SIP- 45% reduction from 1997

–  East Texas SIP- 51% reduction from 1997

Electric Generator- NOx Reductions Achieved UnderTCEQ 1-hr Ozone SIP Rules!

Between 2000 and 2005, electric generating companies in Texas spent over $1 billion on NOx

emission reductions alone.

64!

Texasʼ Electric Generating Plants Among Cleanest NOx Emitters in the Nation!

EPA Acid Rain Database, 2010

NO

x (

lb/

MM

Btu

)

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800 SD

N

D

NM

U

T N

E D

C

WY

K

S O

K

CO

M

T MI

IA

IN

AR

PA

K

Y

MN

VA

A

Z DE

OH

M

S IL

MO

W

A

MD

LA

TN

W

V

WI

AL

NC

G

A

OR

N

H

SC

TX

NV

FL

N

Y

VT NJ

MA

C

T M

E RI

ID

CA

Texas has the 12th cleanest average NOx emissions rate.

U.S. Average-0.156 lb/mmBtu

65!

Average Emission Rates of Nitrogen Oxides from Existing Texas and U.S. Power Plants

Source: EPA Acid Rain Database, 2010

NO

x (lb

/MM

Btu

)

0

0.1

0.2

0.3

0.4

0.5

0.6

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nation

Texas

66!

Texasʼ Electric Generating Plants Among Cleanest SO2 Emitters in the Nation!

EPA Acid Rain Database, 2010

SO

2 (

lb/

MM

Btu

)

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

1.000 O

H

NH

N

D

SD

IN

MI

DC

D

E PA

M

O

KY

TN

N

E VA

IA

G

A

WI

AL IL

SC

A

R

NC

TX

LA

O

K

WV

M

S W

Y

MA

M

N

KS

MD

O

R

MT

CO

N

Y

FL

NJ

UT

AZ

NM

N

V

CT

WA

M

E V

T C

A

RI

ID

Texas has the 27th cleanest average SO2 emissions rate.

U.S. Average- 0.387 lb/mmBtu

67!

A common refrain is that CO2 emissions generated in Texas are higher than in other states. However, it is critical to view that in the context of other truths:

−  Texas generates more electricity than any other state; in fact, Texas produces almost 80% more electricity than the next most generating state.1

−  Much of the CO2 emitted in Texas results from the generation of “products” that are very significant to our state and nation. For example, Texas produces about:

−  60% of petrochemicals produced in the U.S. −  30% of gasoline and diesel refined in the U.S. −  10% of electricity generated in the U.S.

−  The dollars of gross product produced in Texas per ton of CO2 emitted is high, and it increased by more than 1000% between 1963 and 2001.2

−  The amount of CO2 emitted per MWh of electricity generated in Texas is lower than that of half of the states that have more than a nominal amount of coal-fired or oil-fired electricity generation.3

CO2 Emissions in Context of Texasʼ Economy!

1Source: EIA, 2008 State Electricity Profiles 2Source: “Global Warming: What Should Texas Do?” Texas Public Policy Foundation, April 2007 3Source: EPA Acid Rain Database, 2009

68!

Texasʼ Electric Generating Plants Among Cleanest CO2 Emitters in the Nation!

EPA Acid Rain Database, 2010

CO

2 (

lb/

MM

Btu

)

0

50

100

150

200

250 N

D

WY

M

T V

T N

E IA

WV

IL

M

O

SD

KY

TN

O

H

KS IN

M

I W

I M

N

MD

N

C

UT

CO

PA

SC

G

A

NM

A

R

AL

AZ

VA

WA

TX

D

E O

K

DC

N

H

LA

FL

MS

NV

M

A

OR

N

Y

NJ

CT

ME

CA

ID

R

I

Texas has the 18th cleanest average CO2 emissions rate.

U.S. Average- 183.68 lb/mmBtu

69!

1995-2010 Emission Rate Trends!

Sulfur Dioxide (SO2) Nitrogen Oxides (NOx) Carbon Dioxide (CO2)

lb./mmBtu lb./mmBtu lb./mmBtu Year Nation Texas Nation Texas Nation Texas 1995 1.088 0.526 0.537 0.319 198.35 160.3 1996 1.103 0.535 0.53 0.325 196.74 174.81 1997 1.093 0.524 0.509 0.311 194.01 172.69 1998 1.055 0.482 0.481 0.307 191.37 167.43 1999 0.999 0.481 0.441 0.284 191.27 168.78 2000 0.875 0.381 0.399 0.261 191.40 166.37 2001 0.843 0.385 0.373 0.221 189.71 165.97 2002 0.793 0.384 0.348 0.173 188.54 166.01 2003 0.815 0.389 0.321 0.143 189.62 168.93 2004 0.779 0.353 0.286 0.124 188.08 166.96 2005 0.753 0.349 0.268 0.116 187.17 166.51 2006 0.702 0.338 0.255 0.111 186.27 165.75 2007 0.644 0.32 0.237 0.103 184.92 166.36 2008 0.564 0.315 0.222 0.103 186.43 171.65 2009 0.458 0.309 0.159 0.098 183.88 166.20 2010 0.387 0.304 0.156 0.095 183.68 169.25

EPA Clean Air Markets Division – 1995- 2010 Acid Rain Program Data

70!

Technical Feasibility of CO2 Reductions!

Technology EIA 2008 Reference Target

Efficiency Load Growth ~ +1.05%/yr Load Growth ~ +0.75%/yr

Renewables 55 GWe by 2030 100 GWe by 2030

Nuclear Generation 15 GWe by 2030 64 GWe by 2030

Advanced Coal Generation

No Heat Rate Improvement for Existing Plants

40% New Plant Efficiency by 2020–2030

1-3% Heat Rate Improvement for 130 GWe Existing Plants 46% New Plant Efficiency

by 2020; 49% in 2030

CCS None Widely Deployed After 2020

PHEV None 10% of New Light-Duty Vehicle Sales by 2017; 33% by 2030

DER < 0.1% of Base Load in 2030 5% of Base Load in 2030

Chart Source: EEI and EIA

71!

  Federal Clean Air Interstate Rules (CAIR) −  Requires additional NOx and SO2 emissions reductions from power plants in

2009, 2010, and again in 2015, with a cap and trade program. −  The NOx and SO2 emissions from all new units must “fit” under the 2009, 2010,

and 2015 caps; such emissions are not in addition to those caps. −  TCEQ has recently revised its rules to implement CAIR.

  Regional Haze −  Requires reductions in NOx, SO2, and Particulate Matter (PM) emissions based on

best available retrofit technology (BART) for different types of facilities, including electric generating units, industrial boilers, and refineries.

−  EPA has decided that NOx and SO2 emissions reductions made for CAIR will suffice for the NOx and SO2 emissions reduction requirements under Regional Haze.

−  The TCEQ is developing rules to implement BART.

Additional Emission Reductions

72!

Giving Back to the Environment

•  AECT member companies help to improve our environment through stewardship, support for new technologies and partnership with other agencies.

Environmental Stewardship!-  Reducing releases of chlorofluorocarbons from electrical equipment - Recycling coal combustion products - Educating schools and communities about renewable energy - Designating land and reservoirs for public recreational use - Preserving and restoring forests by planting millions of trees - Helping other industries adopt pollution-prevention plans - Launching education campaigns to help communities save energy - Creating wetlands and wildlife habitats on company properties -  Reclaimed water utilization -  Offering renewable energy products to retail customers

Environmental Partnerships

-  Climate Challenge Program - Energy Star - Energy Smart Schools - Environment Research Program

-  EPA SF6 Partnership program

-  Mickey Leland Internship Program - TCEQ Teaching Environmental Science -  Green Lights - Habitat Protection - Learning From Light! - Millennium Council - Million Solar Roofs - National Energy Education Development (NEED) Project - Natural Gas Star

73!

Selected Environmental Programs and Fees

•  The electric industry is among the most heavily regulated in the nation, complying with hundreds of regulations and paying millions of dollars in fees annually.

Selected Current Environmental Programs - Compliance with National Ambient Air Quality Standards -  State Implementation Plan -  NOx reductions for electric generating units -  Clean Air Interstate/Clean Air Mercury Rules -  New Source Review (NSR)���Prevention of Significant Deterioration -  Non-attainment NSR, including offset -  State Minor NSR -  Title V and Acid rain permits -  Compliance Assurance Monitoring -  Continuous Emissions Monitoring Systems -  Toxic Release Inventory -  Monitoring cooling water -  Mass Emission Cap and Trade Program

Selected Current Environmental Fees

- Title V federal operating permit fees ���- Air inspection fees ���- Air quality permit fees ���- Air quality permit renewal fees ���- Wastewater inspection fees ���- Wastewater permit application fees ���- Water quality fees ���- Potable water fees ���- Water use permit application fees ���- Hazardous waste generation fees ���- Non-hazardous waste fees -  Low level radioactive waste fee -  Injection well fee

74!

Transmission and Distribution Utilities!

75!

•  Transmission and Distribution Utilities: –  Provide reliable delivery of electricity on a 24-7 basis. –  Invest in and build infrastructure (e.g., transmission lines, Smart Grid) to support

the needs of Texas’ growing economy. –  Manage their transmission networks under the direction of ERCOT; coordinating

with ERCOT on transmission planning activities. –  Respond to outages (e.g., storms, natural disasters) that affect the grid and restore

service as quickly as safely possible. –  Provide key market information, such as premise information and metering

services to facilitate successful operation of the ERCOT deregulated market. –  Provide regulated transmission and distribution services to facilitate operations of

wholesale and retail business entities.

–  Charge regulated delivery rates to REPs   Rates based on a historical cost of service including a PUC-established return on capital

investment

  Allocation of ERCOT-wide transmission costs

  Non-bypassable charges include the cost to deliver electricity, System Benefit Fund, recovery of true-up costs and nuclear decommissioning expenses for existing nuclear facilities

TDUsʼ Role in the Competitive ERCOT Market!

76!

•  ERCOT Transmission –  1995 amendments to the Public Utilities Regulatory Act (PURA) required PUC to

ensure open access to transmission grid, allowing new independent generators to utilize transmission network.

–  TX76RSB 7 adopted “postage stamp” transmission pricing structure and eliminated impact of location on transmission rates.

–  Transmission Cost of Service (TCOS) ratemaking structure implemented and billed to distribution service providers (DSP).

–  DSPs recover TCOS through the TDSP delivery rate and transmission cost recovery factor (TCRF), approved by PUC.

–  New transmission investment is coordinated through the ERCOT regional transmission planning process and requires PUC facility certification.

T&D Market Design:!ERCOT!

77!

Transmission Investment in Texas

•  Since 2009, TDUs have invested over $2.0 billion in the ERCOT transmission grid.

•  ERCOT estimates that the electric grid will require adding or improving 5,993 circuit miles of transmission lines at a cost of over $9.0 billion from 2011 through 2016 and beyond.

•  This investment includes the cost of integrating Competitive Renewable Energy Zones (CREZs) into the competitive ERCOT market. Source: ERCOT, “Report on Existing and Potential Electrical System

Constraints and Needs,” December 2010

78!

Continued Transmission and Distribution Investment Needed Throughout Texas

•  According to the Texas State Data Center, 5 million new residents are expected in Texas by 2020.

•  New generation must be delivered effectively and efficiently to population centers of the state.

•  Texas must provide regulatory certainty and fair rates of return to ensure appropriate capital investment.

•  Though not shown here, areas of Texas located outside the ERCOT grid are also growing, both in terms of population and economic development.

Source: ERCOT, “Report on Existing and Potential Electric System Constraints and Needs,” December 2010

79!

•  While certain types of generation can be constructed quickly -- often as short as 12-18 months -- transmission lines typically take between three and five years. Generation can be brought into the market more rapidly if the siting takes advantage of the existing transmission infrastructure.

•  Building long transmission lines can affect many landowners, often requiring a lengthy and extensive easement acquisition effort.

•  The transmission line siting process must take into account the impact of those lines on environmentally sensitive and historically significant lands.

•  Utility is not typically allowed to begin recovering costs until year 5 or 6.

Challenges of Transmission Line Construction

Example of Transmission Construction Process in ERCOT

80!

Distribution Investment Also Needed

•  The need to replace an aging distribution infrastructure to meet population and demand growth will require continued investment.

•  It is becoming more evident that rising construction material costs are an increasingly important driver contributing to the higher actual and planned utility industry infrastructure investments.

•  Nationwide, distribution investment is expected to be almost triple the size of projected transmission spending, according to the Edison Electric Institute. Distribution investment is likely to exceed generation and environmental capital spending, as well.

81!

•  Non-ERCOT Transmission –  Wholesale open access transmission rights subject to Federal Energy

Regulatory Commission (FERC) jurisdiction.

–  FERC transmission pricing reflects location of generation.

–  FERC requires generators to bear higher cost relative to the ERCOT system of connecting with the transmission grid.

–  Certification in Texas is with the PUC.

–  Recently adopted PUC rules allows most non-ERCOT utilities to recover transmission investments between rate cases through a transmission cost recovery factor (TCRF).

T&D Market Design:!Non-ERCOT!

82!

Competitive Renewable Energy Zones:!Legislative and Regulatory Steps

•  The Texas Legislature mandated steady increases in renewable power in TX76RSB 7 (1999) and TX791RSB 20 (2005).

–  Starting Line: 880 MW in 1999 –  Old Goal 1: 2,880 MW by 2009 (Achieved by 2007) –  New Goal 1: 5,880 MW by 2015 –  New Target 1: 10,000 MW by 2025 –  New Target 2: 500 MW non-wind renewable generation

•  TX791SB 20 (2005) also required PUC to: –  designate Competitive Renewable Energy Zones (CREZs) in areas in which renewable

energy resources and suitable land areas are sufficient to develop generating capacity from renewable technologies;

–  develop a plan to construct necessary transmission capacity in a manner that is most beneficial and cost effective to customers; and

–  take into account transmission constraints, the need for generation and the level of financial commitment by generators when defining CREZs.

•  PUC adopted Substantive Rule 25.174 in December 2006, which creates framework for determining CREZs.

•  Texas currently has 9,727 MW of installed renewable generation capacity (September 2010).

83!

Map of Adopted!Competitive Renewable Energy Zones!

84

Energy Efficiency!

85!

Energy Efficiency in Texas:!Overview

•  Texas continues to be an energy leader through policies designed to improve the stateʼs energy efficiency programs and bring improved technologies to the electric market.!

–  Utility-run programs have reduced customer consumption, thereby reducing the need for the construction of new generation.!

–  Advanced metering provides information and opportunities that enable customers to take better control of their energy consumption and bills.!

–  Houston and Dallas-Fort Worth ranked 1 and 2 nationally in number of homes that qualified for EPAʼs “Energy Star” designation.!

•  The Texas Electric Choice Act requires electric utilities to provide energy efficiency programs and incentives, including efficiency programs for low-income customers.!

–  TX80RHB 3693 raised the energy efficiency goal for electric utilities from 10% of annual demand growth to 15% in 2008 and 20% in 2009.!

–  The recent PUC recently passed a rule requiring utilities to offset 30 percent of their projected growth in demand by 2013.!

•  ERCOT competitive retailers are developing innovative plans and products that will help customers use less energy (e.g., customer education programs, energy audits, Internet-controllable thermostats, etc.)!

86!

Energy Efficiency ProgramsHave Exceeded Goals

•  In 2009, utilities in Texas exceeded their statewide legislative energy efficiency goals for the seventh straight year. Utilities achieved 240 MW of peak demand reduction in 2009, which was 82% above the132 MW goal.

•  Energy savings from standard offer programs and market transformation programs resulted in an equivalent reduction of 827,409 pounds of nitrogen oxide emissions per year.

•  Since the start of the state’s energy efficiency program in 1999, utilities have achieved 1,365 MW of peak demand reduction and 3,574 GWh of electricity savings.

Total Energy Savings by Investor-Owned Utilities 2003 - 2009!

Source: Frontier Associates LLC, “Energy Efficiency Accomplishments of Texas Investor Owned Utilities, Calendar Year 2009”

87!

TX80RHB 3693: Enhancing Energy Efficiency

TX80RHB 3693 included a host of programs designed !to help reduce electricity usage in Texas.!

•  Raises energy efficiency goal for electric utilities from 10% of annual demand growth to 15% in 2008 and 20% in 2009.!

•  PUC will study energy efficiency programs by January 15, 2009, and submit a report to the legislature. !

–  The study shall address whether utility energy efficiency programs should continue and whether energy efficiency programs are best provided by the competitive market.!

–  The findings of the study will determine whether a goal increase to 30 percent is achievable by 2010 and 50 percent by 2015.!

•  PUC will work with ERCOT to develop a method to account for projected energy efficiency impacts in ERCOTʼs forecasts of future capacity, demand, and reserves. !

88!

TX80RHB 3693: Enhancing Energy Efficiency!

•  The bill also includes:!–  an energy efficiency cost recovery factor;!–  a utility financial incentive for exceeding goals; and!–  the ability for utilities under a rate freeze to defer recognition of these costs.!–  Provisions aimed at reducing energy consumption by schools and government

buildings.!–  Stronger, more energy-efficient building standards for low-income housing.!–  Creates an annual sales tax holiday during Memorial Day weekend for energy efficient

products that bear the designation of the nationwide “Energy Star” program.

89!

Benefits of Advanced Metering

•  Advanced meters and other new technologies and associated infrastructure will provide information and opportunities that will enable customers to better understand the impact of controlling their energy consumption.

•  By controlling their energy consumption, customers can better manage their bills and lessen their environmental impact.

•  Advanced meters will allow for more automation of utility functions such as meter reading and connections/disconnections, which help to reduce costs.

90

The Smart Grid Transforms the Way We Buy, Deliver and Use Electricity

Key Stakeholder

Consumers

Electric Utility

Retailers

• Automated meter reading •  Improved system reliability and greater ease/timeliness of power restoration •  Improved line fault detection and diagnostics • Real time grid feedback allows for more effective loading of utility assets • Enables increased monitoring and diagnostics to enhance the life of utility assets

•  Electric reliability improvements •  Friendly access to detailed consumption information to make informed choices

and enable faster transactions •  Enables and promotes energy conservation •  Efficient switching and connections/disconnections

• Expands retailer’s ability to offer new products • Establishes platform to offer future home appliance monitoring and control • Allows retailers to offer pre-payment programs • Efficient switching and connections/disconnections

Environment

• Enables demand-side management • Facilitates integration of solar and wind generation into grid • Promotes energy efficiency through immediate energy consumption awareness • Facilitates reduced electric consumption which leads to reduced power plant

emissions

Benefits

91!

Advanced Metering Activities in Texas

•  The approved deployment plan for CenterPoint Energy calls for installation of advanced meters over five years beginning in March 2009. In 2009, CenterPoint Energy received a Federal Smart Grid Investment Grant that enables the deployment to be completed by late 2012. Through October 2010, CenterPoint Energy has installed 789,857 advanced meters.

•  Oncor’s approved deployment plan initiated in late 2008 will have installation of advanced meters completed by the end of 2012. To date, Oncor has installed over 1.4 million meters.

•  The AEP Texas deployment plan was approved in December 2009 and installation of advanced meters will be completed by the end of 2013. To date, nearly 5,000 meters have been installed in Portland, Texas, in order to conduct a system acceptance test.

92!

Competitive Retail Electric Market !in ERCOT!

93

The ERCOT Competitive Retail Electric Market is Providing Strong Customer Benefits!

Key Takeaways

–  Price offers are lower than they were one year ago, and, when adjusted for inflation, substantially lower than prices available just before competition began.

–  Retail electric price offers have improved, despite the increased price of energy commodities, such as gasoline, crude oil, natural gas and coal.

–  Among states, like Texas, that depend heavily on natural gas for power generation, Texas prices compare favorably, with even lower prices available to those in the competitive market.

–  Since January 2007, the average fixed offer price in the competitive market has fallen by 39 percent, while the average U.S. electric price outside Texas has risen by 22 percent.

–  The System Benefit Fund (SBF) provided benefits for low-income Texans during the summer. Several retailers, including AECT member companies, also offer additional low-income customer assistance programs, so customers should also contact their REP to learn more about the options that might be available to them.

94

Competitive Market Bringing Sustained Lower Prices

Source: www.powertochoose.org; prices are a simple average among service territories.

Prices in the competitive market have remain low

over the past year

95

Lower prices available today than before competition began

Sources: PUC Historical Data, Bureau of Labor and Statistics, www.powertochoose.org offers as of August 31, 2011

96

Competitive Residential Electric Price Offers !Have Fallen Since Just Before Full Competition Began in January 2007!

Source: http://www.powertochoose.org (12/31/06 & 8/31/11)

AEP Texas North Service Territory

Change in Average 1yr Fixed-Price Offer:

34% decrease

Since December 2006, competitive price offers for residential customers have fallen in every service area.

Texas-New Mexico Power Co. Service Territory

Change in Average 1yr Fixed-Price Offer:

29% decrease

AEP Texas Central Service Territory

Change in Average 1yr Fixed-Price Offer:

37% decrease

Oncor Service Territory

Change in Average 1yr Fixed-Price Offer:

33% decrease

CenterPoint Energy Service Territory

Change in Average 1yr Fixed-Price Offer:

34% decrease

97

Texasʼ National Price Ranking Has Improved With Competition Despite Input Fuel Cost Increases AND Customers Can Choose Plans To Meet Their Needs

0

2

4

6

8

10

12

14

16

18

KY WA ID WV

OR TN ND NE UT

WY

MT IN MO AL OK

MS

SD CO

MN KS MD SC AR GA

DC VA WI

LA NC MI

AZ

OH IA FL DE IL NM TX NV PA NJ CT

CA AK RI

MA

NH VT

ME

NY HI

Source: EIA average annual residential rates for 2001 and May 2011 monthly data (latest available information). Average lowest available price from powertochoose.org Web site as of 5/17/11 for a residential customer using an average of 1,000 kWh per month.

¢/kW

h ¢/

kWh

2001 State Ranking (Pre-Competition)

May 2011 State Ranking (Latest Available)

Average lowest available offer in

competitive market in May 2011: 6.1/kWh

98

Every Competitive Area in ERCOT Has Variable and 1-Year Lock Offers Available that are Lower than the National Average Price

Sources: PowerToChoose.org offers as of May 17, 2011, U.S. Energy Information Administration, latest available data

99

Offers in Competitive Areas Compare Well With Prices in Other Areas of the State With Other Market Structures

Sources: Phone surveys conducted September 17, 2010; Power to Choose Web site, September 20, 2010; AECT member company data

¢/kW

h

100

Retail Electric Prices Have Grown Far Less Than Other Energy Commodities

Sources: Public Utility Commission of Texas, U.S. Energy Information Association, NYMEX Commodity Exchange, Bureau of Labor Statistics. Notes: Commodity prices latest available as of August 31, 2011. Inflation covers period from 2001 to 2011

Percentage Change in Commodities

December 2001 – May 2011

101

ERCOT Generation Mix Compared to U.S. Average!

Note: Oil-fired generation is negligible in ERCOT, accounting for less than 0.1% of ERCOT capacity and load; numbers may not add up to 100% due to rounding.

Sources: ERCOT (2010 data)

Cap

acity

(MW

) En

ergy

(MW

h) ERCOT U.S. Average

Natural Gas

Coal

Nuclear

Renewable (Mostly Hydro)

Oil

39%

31%

10%

14%

6%

Nuclear

Natural Gas

Coal

Renewable (Mostly Hydro)

Petroleum

21%

48%

20%

9% 1%

Coal

Nuclear

Natural Gas

Other

38%

40%

13%

1%

Coal

Natural Gas

Nuclear

Wind

59%

22%

6%

11% 2%

Other

Wind 8%

102

ERCOT far More Dependent !On Gas Than Neighboring Power!Regions!

% MWh from Natural Gas

% MWh from Coal

% MWh from Other

% MWh from Hydro

% MWh from Nuclear

103

Texas Market Compares Favorably to Other States Utilizing Natural Gas as the Primary Generation Source!

Sources: Energy Information Administration (data as of May 2011); EIA natural gas-intensive states; powertochoose.org as of 5/17/11.

Average Lowest Available Price in ERCOT Competitive

Market In May 2011: 6.1¢/kWh

Note: Texas statewide average price includes prices from both competitive and regulated areas of the state.

104

Competitive electricity prices still track natural gas, but enable customer choice and lower prices

104

Natural Gas vs. Texas Residential Retail Electricity Prices In Areas Now Open to Competition 1992 – 2011 YTD; $/MMBtu and ¢/kWh NYMEX Natural Gas, 12-month Strip Annual Average ($/MMBtu)

With Electric Competition

Before Electric Competition

Residential Electricity Price Annual Average (¢/kWh)1

Average Competitive Offer

Average Lowest Offer

NYMEX Average 12-Month Strip

‘02-11 Natural Gas Avg: $6.64/MMBtu (+215%)

‘92-99 Natural Gas Avg: $2.11/MMBtu

1 Average annual residential electric prices at 1000 kWh/month in the 5 TDU areas opened to competition in 2002; pre-competition prices based on filed tariffs; post-competition prices based on Power to Choose offerings and PUC data

Sources: NYMEX, PUC, Power to Choose website (latest data as of 6/6/11)

105 -20

-10

0

10

20

30

40

50

TX C

ompe

titiv

e M

A TX

Sta

tew

ide RI

CT

CA ME

Nat

ural

Gas

Sta

tes

(-TX)

LA

FL

N

V A

R

Res

truc

ture

d St

ates

(-TX

) N

H

NY UT

WA DE

MT NC

VT

A

K

IA

US

(-TX)

M

S N

M

OR

C

O

WI

WY IL

SD

SC

M

N

NJ

OH

A

L PA

TN

VA

M

I K

Y O

K

GA DC

N

E AZ IN

ID

N

D

MD

K

S W

V HI

MO

Residential Price Changes (%) - Jan 2007 - May 2011

Since January 2007, Texasʼ Prices Have Fallen While Others Have Risen

Source: EIA average annual residential rates for January 2007 and May 2011 (latest available data), powertochoose.org for January 2, 2007 and May 17. 2011

Texas -5%

Gas-Dependent States (excl. TX)

2%

US Average (excl. TX)

22%

Lowest Competitive Offer Prices in Texas

-39%

Restructured States

(excl. TX) 12%

106

Protections in the Market forRetail Customers

•  Make Spanish-language support available to customers

•  Place customer deposits in interest-bearing accounts and return that interest to customers when the deposit is returned

•  Follow a mandated timeline for disconnection of customers

•  Provide notice in case of disconnection •  Investigate any customer complaint within 21 days •  Provide a Terms of Service Statement detailing

contract terms, cancellation penalties, deposit requirements, fees, payment arrangement options, how to cancel service, and other obligations of the REP

•  Allow a customer to cancel a service agreement within three federal business days after receiving the terms of service

•  Allow a customer to cancel the switch upon receiving notification that the switch will occur

•  Register with the PUC and meet financial requirements set by the Commission

•  Communicate clearly with consumers regarding notice of contract expiration

•  Demonstrate creditworthiness to purchase power to serve its customers

•  Demonstrate the technical ability to supply electricity

•  Maintain privacy of customer information •  Not discriminate among customers •  Not add charges to a customer’s electric bill for

services not requested by the customer •  Provide a “Your Rights as a Customer” disclosure •  Provide an Electricity Facts Label to allow for an

“apples-to-apples” comparison among REPs •  Make deferred payment plans available for those

expressing an inability to pay •  Provide the LITE-UP discount for low-income

Texans during summer months

Among other requirements, REPs serving residential customers must:

Even this brief sampling of regulations highlights that customers are protected

107

Benefits for Qualified!Customers: REP Programs!

•  Several retail electric providers across the state also provide additional, voluntary programs to assist low-income customers. Examples of programs include:

–  Since May 2003, the Neighbor-to-Neighbor program has helped tens-of-thousands of Direct Energy, CPL Retail Energy, and WTU Retail Energy customers with their home energy expenses. The program was created to assist families experiencing financial emergencies with up to $200 in bill payment assistance, as much as twice during a calendar year. The program is administered by more than 30 community action agencies across the state.

–  The Care to Share Fund provides bill payment assistance to eligible First Choice Power residential customers in need of emergency funding. Customers can donate to the Care to Share Fund and assist residential customers who need a little extra help by providing extra emergency assistance through the Care to Share Fund.

–  The CARE Energy Assistance Program was created by Reliant Energy to help Reliant customers during a difficult time. Customers who qualify may receive this one-time annual assistance through non-profit social service agencies in communities that are served by Reliant Energy. These agencies review customer cases and qualify them based upon the agency’s designated hardship criteria.

–  TXU Energy has committed $25 million per year for 5 years to fund a 10% low-income discount, and an additional $5 million per year for 5 years for low-income bill assistance through its TXU Energy Aid program. In addition, TXU Energy has established the Low Income Advisory Committee and works collaboratively with over 400 agencies across the state to assist customers in need.

–  Since September 2006, several REPs have participated in the low-income credit program resulting from CenterPoint Energy’s 2006 rate case settlement. This program is currently providing a credit of $7.68 per month to eligible customers.

•  Texans can check their electric provider’s Web site or call their provider to see what other programs are available.

108!

Web: AECT.net

Blog: AECTnet.wordpress.com

Twitter: twitter.com/AECTnet

Facebook: Association of Electric Companies of Texas, Inc.

Email: [email protected]